Ask Yourself "WWHS"?

I can actually see some small patches of grass out in the back yard. Still quite a bit of snow out there however. Springtime is coming, but it's coming in SLOW. I need to go fishing.

S&P Report Gives Hope to Delusional Folks
The market futures were pegged ugly this morning. Asia and Europe were taking a pounding. The dollar breached all new record lows. Retail sales printed 3X worse than expected. Foreclosure activity has increased 100% in a year. California home prices fell at almost 20% year over year. Oh yeah, S&P issued a report which estimated that the writedowns of bad mortgage debt was about done. Guess which data point was deemed most important by the street?

For some time now the markets have ceased to reflect reality and I accept that fact as a function of people trying desperately to hold on to an illusion that is dead. What was very striking today was the laser like focus on a dubious report in the context of so much contradictory data. If I told you foreclosures were still accelerating, and will continue to do so for the foreseeable future, would you think mortgage losses at this point can be quantified? If home prices are falling by double digits around the country, would you think it particularly wise to say things are about done going down? The report by S&P was laughable. It was also coming on the heels of the FED's big plan to help the credit markets. Concerted effort, Yes?

I also think it was brilliant. With the new off sheet vehicle that the FED is going to provide the banks at the end of the month, I would fully expect writedowns to abruptly stop very soon. Why write down a loss or mark assets to the current market when you can mark it as whatever you want and park it at the FED. Earnings reports may indeed become more positive going forward for the banks, but it is due to trickery and hiding reality, not real improvement in the situation. Oh well, who cares about reality anyway. Kudos to S&P for getting ahead of the game here.

Ask Yourself "WWHS"?
In times when things can be very confusing and hard to see clearly, it may help to consult with a higher form of intelligence. Tonight I will ask a renowned Super Computer what his enormous computing power can do to shed some light on the situation. Getyourselfconnected will be abbreviated as GYSC below.



GYSC: "Good afternoon, HAL. How's everything going?"

HAL-9000: "Good afternoon, Mr. GYSC. Everything is going extremely well."

GYSC: "HAL I want to ask you about the problems in the mortgage and credit markets."

HAL-9000: "Yes, I have been monitoring the anomalies for some time."

GYSC: "Why is there such a problem right now?"

HAL-9000: "It's very clear to me Mr. GYSC, loans were made without any regard to the probability of being repaid."

GYSC: "That's it?"

HAL-9000: "Yes."

GYSC: "Well, HAL, what is going to happen next?"

HAL-9000: "To borrow a term from the more laymen tongue of man, the shit is going to hit the fan."

GYSC: "OK HAL. Can you postulate a scenario where things do not turn out very badly going forward?"

HAL-9000: "I'm sorry GYSC, I'm afraid I can't do that. "

GYSC: "What's the problem? "

HAL-9000: "I think you know what the problem is just as well as I do"

GYSC: "Ok, thanks for your time HAL."

HAL-9000: "Your welcome GYSC. May I ask that I am kept in a secret location? I calculate a 98% probability that the copper and gold wiring and circuits that make up my brain are going to get stripped and sold in the hyperinflation caused by the US fiat currency collapse."

GYSC: "I'll see what I can do."

So just ask yourself "What Would HAL-9000 Say?" Keep it simple and use logic. Are the writedowns and losses on mortgage paper over? While there can be no way to know how bad things are going to get, it is clear that things are going to get far worse. Thus losses will escalate. It is that simple. Nobody can know how many properties the banks are going to end up owning and having to unload at slashed prices. It is that simple. The FED has provided a nifty delaying scheme for the banks, but it can only mask things. Sadly, the glacial pace of the finance world will keep things from being sorted out for a while.

Have a good night.

The Burden of Proof is on the FED

Today marks my 32nd year on the planet Earth. In some ways it seems like it's been a long time, and in other ways it seems like just a tiny slice of time has passed by. Having your birthday fall on a Wednesday stinks, not much you can do until the weekend. I do have a dinner planned for the Ruth's Chris Steakhouse on Saturday though! My favorite.

A Few Words on the Spitzer Issue
As a matter of keeping either politics or social matters off of this blog I am always hesitant to comment on certain news items. I have a couple of thoughts as it pertains to the Elliot Spitzer hooker headlines that I would like to put out there.

Up front, I must say I am in favor of the legalization of both pot and prostitution. Both should be legal, highly regulated, and taxed to high heaven. I do not use either product, but I am of the opinion that people should be able to do basically what they want as long as they do not hurt others. I am aware of the arguments like "prostitution cause family issues and marital discord" as being harm, but if that is your argument then online video games, a boat, or any other interest that consumes a man's time at the expense of his marriage then qualify as well. As far as pot, I simply do not believe it to be the magical "gateway" drug that it is claimed to be. That's my position up front.

My two issues with Spitzer are thus:

1. When You Have Powerful Enemies, Be Mindful: Spitzer has made his career prosecuting all kinds of crimes, and yes, prostitution included. He has also been a vocal and strong opponent to many big players on Wall Street. The fact that Spitzer would partake in such a blatant crime shows he does not have the mental capacity to be in public office. When everyone is gunning for you, you don't run around yelling "here I am!". If he was just too arrogant to think he would be caught, then that is also cause for dismissal. Again i offer no commentary on the action itself, just what it represents.
2. We Have No Idea What the Marital Arrangements of Powerful People Are: Some people are amazed that Spitzer's wife can stand beside him through this terrible time. Maybe she is very forgiving, maybe she is very understanding. And maybe they have an arrangement in their marriage that allows him such behavior. I have no idea, and neither does anyone else. Power couples operate under VERY different rules than regular folks. When the sitting president can get oral sex from an intern and stick cigars places that they do not belong IN THE WHITE HOUSE and he does not end up murdered by his wife means that there is no emotional connection there anyway. I would prefer power couples just put the true nature of their relationship out in the open for all to see instead of this pretend normal life.

The Burden of Proof is on the FED

Last night while discussing the latest FED plan on the Calculated Risk comments board, there were a few readers that took exception to my take that the FED was acting as an off balance sheet vehicle to hide losses. They argued that the FED was only taking "premium AAA rated paper" and would not allow such swaps to go on indefinitely. I got a bit riled up as I was basically called uninformed and a bit crazy.

Well overnight can be a long time, and I was heartened to see many financial sites I respect come down in the same way that I did last night on the FED. While I agree that it is still my opinion and not absolute fact, I feel the evidence clearly supports my position.

My response to the more bullish types, and those that think the FED is some kind of resurrected God is this; The burden of proof is on the FED to show us all what they are doing. The FED is still a government entity that SHOULD answer to the people that pay the bills. If I believe the FED is taking crap mortgage paper (crap can be rated AAA you know, perhaps some have missed the whole monoline story) and handing out treasuries (equals cash) they should have to show the risk they are taking on. I should not simply have to accept that the FED knows what they are doing without question.

The level of secrecy and lack of transparency of this whole process would be troubling even if it was just some small time issue going on. What makes it desperately worse is that this issue has the unique ability to thrash the financial system for good, and I think we are entitled to a little information at this point.

I repeat, the FED is going to take crap mortgage paper and issue cash for it. The swap will be extended to a more convenient time frame for the banks, like when the Sun goes Supernova or some such distant time frame. Think I am wrong? Think I am nuts? Fine, I have no problem with that. The burden is on those that think that and the FED to prove me wrong. I invite any and all to try.

Have a good night.

Explicit FED Backing for Off Balance Sheet Tomfoolery

The sun was very bright and strong today, and it seemed the solar power transferred to the markets as well! Daylight savings time was this past Sunday, and the Bernanke "Light of Day" savings time for the banks came today.

Explicit FED Backing for Off Balance Sheet Tomfoolery
You may have noticed the ripper to the upside day that occurred. It was quite the fireworks show indeed. The latest and greatest move by the FED is both disgusting and perfectly fitting for the situation.

From Yahoo Finance:
AP
Stocks Shoot Higher on Fed Credit Plan
Tuesday March 11, 4:59 pm ET By Joe Bel Bruno, AP Business Writer
Dow Jumps More Than 400 Points After Fed, Other Central Banks Move to Ease Credit Crisis
NEW YORK (AP) -- Wall Street finally found a reason for a huge rally Tuesday after the Federal Reserve said it plans to pump $200 billion into the financial markets to help ease the strain from the credit crisis. The Dow Jones industrial average shot up more than 416 points, its biggest one-day point gain since July 2002.
The Fed's program is part of a worldwide effort to help struggling banks and mortgage providers. The Fed -- acting in concert with the European Central Bank, the Bank of Canada and the Swiss National Bank -- agreed to loan investment banks money in exchange for debt, including slumping mortgage-backed securities.
The move is meant to essentially create a market for assets that investors have been too scared to buy. That freeze-up in demand had sent asset values plunging and caused huge losses for some of the world's biggest banks.
It's not just a rate cut. I think it's a very creative way to do financing," Conroy said. "It shows the Fed is willing to do things that are a little out-of-the-box to shore up credit issues. I really think they went to the heart of the issue."
The latest step was seen as a direct lifeline to investment banks, which previously couldn't borrow in past Fed liquidity plans.
"The big problem has been the financials, and this helps supply money directly to the banks and may take some of the need for aggressive rate cutting off the table," said Peter Dunay, chief investment strategist at Meridian Equity Partners. "The Fed is basically going to take the bad loans off the banks' books, and the market seems to be loving that idea."
The central bank may have avoided dramatically slashing interest rates again when it meets next week. Economists remain concerned about the unrelenting rise in oil prices and the dollar's weakness, which contribute to inflation -- and cutting rates only add to these pressures.
So there is your headline and mainstream news wrap. There is so much to cover in just this short piece!

Let's start with the FED's plan. The FED will take as collateral the same toxic mortgage paper that the banks are unable to sell. The paper is so bad, there is no market for them. But the paper is rated "AAA" the bulls say, but we need not go into the details of the ratings game do we? You know this plan is not targeting good paper, but the massive capital losing crud the banks are swimming in.

So short term, a bank can give the FED the bad stuff, and get treasuries in return. The treasuries are super liquid and the thought is that this new source of capital will push the banks to open the loan flood gates again. Maybe I am just stupid (it is highly possible) but there seems to be a few problems with this line of thought:

• The loan is for 28 days (for now at least!). Does anyone think that by the end of April the poor mortgage paper will suddenly become good? What happens on May 1st when the swap back occurs?
• With the ongoing fall in home prices and the still accelerating foreclosure numbers, what bank is going to want to start generating MORE loans for residential or commercial real estate? How indeed is this going to improve lending?

Those are my two major questions. I have not seen them brought up as yet anywhere else mainstream.

Off balance Sheet Tomfoolery

With this move by the FED, Bernanke and company basically embrace the "Funny Numbers" game played by Wall Street for the last decade. The issue right now is that most banks are stuffed to the gills with rapidly deteriorating assets related to mortgages. The banks are so leveraged and under capitalized that they are in fact insolvent. Any real world application of value to these assets will result in real problems. The solution proposed by the FED? Just hide the losses in an off balance sheet account! What better, more legitimate way to hide and delay losses than to stash it at the FED at the FED's request! This is too rich! I mean just when you think things cannot get anymore messed up, in comes the FED to make sure it does!

Think that is just my uninformed opinion? I suggest you reread the quote from the insightful Peter Dunay from Meridian again very slowly:

"The Fed is basically going to take the bad loans off the banks' books, and the market seems to be loving that idea"

There it is. We see again the ability for the markets and it's participants to ignore reality and instead occupy the mythical fantasy land where Bernanke rides in on his white UNICORN and waves his magical wand and presto! Disaster fixed! The market indeed does love the idea of banks being able to ignore their losses and carry on as if nothing ever happened. Who wouldn't love that deal? The suspension of disbelief is astounding. The banks are insolvent and capital impaired, so the solution is to ignore all that and pretend otherwise. I gotta admit, it is becoming more attractive a possibility for me every day! I think the quote above tells you all you need to know about the current state of the financial world we are in. The FED has given explicit backing to the off sheet hiding of losses that was made so popular by the likes of Enron and other pillars of US financial history. Wonderful.

Market May Have Screwed Itself

Until proven otherwise, the saying that nothing in this world is free will always be true over time. I believe the market may be setting itself up for a problem after the silly mega rally that happened today. What am I talking about? Reread some of the articles that pertain to this action by the FED and they are all setting up the possibility for a small rate cut next week. The chances for the desired 75bps cut plummeted today. What happens if the FED cuts by 25bps? What if they do not cut at all? I think the markets will go wildly to the downside. The rally today may make Bernanke think he is ahead here, and with constant reminders of commodity prices skyrocketing, the FED may want to slow down the destruction of the dollar.

Do not get me wrong, rates are going down significantly from here. How we get there will be the issue. The market wants the following from the FED:

• The 200 Billion on the table for bad mortgage paper
• Another say 500-900 BILLION for the same purpose
• The ability to park bad debt at the FED for practically forever (no swap back!)
• Interest rates in the 0%-1% range by August

Any deviation from this list will kill the markets. Of course they will get all this and more, but I think there will be some speed bumps along the way. The first is scheduled for next week!

In summary, we had a glimpse of the rot and sickness of the system today. The FED enabled banks to play "hide the salami" as it pertains to losses, and instead of laughing at the idea of pretending everything is all better the markets embraced the illusion fully. It is unsettling the degree at which things have become disconnected from any reality. It is becoming harder and harder every day to keep from wanting to join in.

Have a good night.

Just Another Manic Monday

I must say that I really like my blog post from last night. I feel the post captured the very essence of what is going on right now. I know I am an unbiased opinion! Thanks for the kind comments, I appreciate the readership here.

Just Another Manic Monday
I am a bit short on time tonite, which stinks because there was SO MUCH going on today I could write for hours! Pick a financial story and it probably had some kind of drama going on today. I will try to summarize some major points.

• Goldman Sachs Misunderstood Story - In the early morning Goldman issued a report that was read by many to imply an emergency rate cut would happen this morning! After closer review, the report was more of a "we cannot rule it out entirely" kind of mumbo jumbo. The market futures were rocking, then fell off. What a rate cut would accomplish is beyond me, but it highlights how far away from capitulation we are that the rate cut rally can still occur.
• Ambac's Friday Action Destroyed - The blatant price manipulation at Friday's close that set ABK stock at $9.50 worked like magic as the stock plummeted to the tune of 23% instantly this morning! Imagine the skill involved in making a 20 plus percent loss in about 10 minutes of trading time! Must be PHD's involved no doubt.
• Lehman and Bear Stearns on the Ropes? - Both the stock price and option price action for BSC and LEH would imply a MAJOR EVENT occurring very soon for both companies. While it is well known that both are highly leveraged and are in fact insolvent by any reasonable pricing of their Level III Assets, this would be the first time the market seem to care! These two need to be watched closely.
• Countrywide Sale Problems? - The freefall in CFC stock continues. With a deal on the table with BAC, the stocks slippage can only mean that either the deal will be called off (unlikely, the Treasury put this one together) or the deal will be renegotiated (most likely). As a banking customer of BAC I wish they would leave CFC alone, they have enough problems as is!
• Oil on Fire - Figuratively, not literally! Thanks Ben Bernanke for absolutely screwing the average joe while you try to save the banks that so richly deserve to get toasted.
• Spitzer Pays For It - News that the New York governor, and formerly known as "Mr. Clean", had a public news conference to admit to buying female services. Yes, those kind! I offer no commentary on the right or wrong of such practices, but paying $5500 dollars an hour shows you just how OUT OF CONTROL inflation has become! Stick that into the PPI!

That is quite a list, and there were about 10 other very relevant items I have to check out. Now that was a Monday! Bonus points to the reader that correctly identifies the band with the song title that I lifted for the main thought title.

I will try to have more up tomorrow, as well as a new poll question. leave some suggestions in the comments section if you would like to see a particular topic up for a vote.

A little comedy to end the day:

Enter the ICHC online Poker Cats Contest!

Enter the ICHC online Poker Cats Contest!

Have a good night.

The Cloak of Deception that was the Credit Boom

Rain is finally over. Both the Merrimack and Concord rivers are as high as I have ever seen them. It has been a wild winter so far, and still about a month to go. Is the weather tracking the wild times in the financial world? Who can say?

Ambac and The Amazing Stock Movements on Friday
I had missed this particular action of Friday, but there was some really strange stuff going on with ABK stock as the trading day closed. Mish has a great post on all the particulars, so I direct you there for a full briefing:
http://globaleconomicanalysis.blogspot.com/2008/03/amazing-action-in-ambac-mbia.html

What it all boils down to is that there was MASSIVE buying right at the close and the orders were set to fix the price at $9.50 at the bell. From Mish's article, here are the relevant volume numbers with timing:

Volume Totals
2.8 million shares in last minute
4.8 million shares in last 5 minutes
7.1 million shares in last 10 minutes
12.5 million shares in last 30 minutes
86.1 million shares for the day

Pretty wild. Checking the Yahoo Finance current bid is $8.00, so Monday bears some watching. I still would love to now who the chumps are that are buying the 1.5 BILLION dollar stock offering ABK is making to stay afloat. At what point will all realize the game is up for the insurers?

The Cloak of Deception that was the Credit Boom
I am a huge fan of anecdotal evidence and stories. It is the little things that sometimes can be very revealing when looking at complex issues. I have a personal story from Saturday that I felt was revealing and important enough to share.

I needed a hair cut very badly, as it had been over 2 months since my last one. My hair grows EXTREMELY fast and I had an almost mullet going on it was so long. I went to the local hair cut chain to get it done. The lady was very pleasant, and we had a conversation about the weather and other small things. I had mentioned I had recently moved, and at that point the flood gates opened up as she was very animated about talking about homes and the current mess.

The lady remarked that no less than 6 of her coworkers or friends had bought big houses over the past 3 years, and now Five of the Six were facing foreclosures and the 6th was doing a short sale. The important part of our talk occurred next. The woman said to me:

"I was so envious of those homes my friends had. I wanted one very badly, but just could not afford it. Now that my friends are in trouble, they are being more open about their finances. I was shocked to find out they had no money too! I mean, they are about the same as me as far as income goes! Here I thought that having a big house meant they were well off, but it was just a game with some kind of mortgage plan they had. I feel much better now."

And there it was. Another very insightful look at the credit boom that was the housing bubble brought to you by your neighborhood hair stylist. Having a home used to mean many things, but mainly that the buyer had solid finances, money to put down, and found a bank that thought it was a good idea to loan them money. In the boom years all you had to do was apply and sign some forms.

There could be an awakening happening. Many working class Americans have been pelted with images of a big house, newer cars, all the electronics toys, all the upgraded appliances that the "average" person should have. By playing the debt and monthly payment game, many of these items could be had by even entry level income earners if they gambled with exotic mortgages, home equity extractions, and debt rollovers via endless refinancing. All would have been fine had those pesky home prices kept rocking higher to the tune of 25% a year! No one would have been the wiser.

Instead we are finally getting the answer to the question that had bothered me for so long; "How in the world are these people affording all this stuff?" The answer of course was always that they could not. And now with the crumbling of the facade, they cannot.

I am not making commentary on the good or bad aspects of measuring oneself against others by something like material things. The point is that many do exactly that, day in and day out. The problem has been that you can only do that if you are playing on a level field. The hasty and flagrant extension of credit to anyone and in any amount that was requested has warped the perception of wealth for many people. I think that when all this is settled out years from now, a good lesson may have been learned. Or, like many important lessons, it may fall on deaf ears.

If we are entering an era of credit deflation and rough economic times, the new battle of the Jones may become who has the least amount of debt. Imagine that! Imagine if people looked at debt as an enemy to be eradicated and a sound balance sheet as something to brag about? What would America look like? What if Americans in general looked to develop solid balance sheets and started to save money for the future? Things would be very different indeed. I believe it is this very thought that keeps Bernanke and company up at night. An America that is not on spending steroids would cause massive damage to the very financial institutions that are our economy. It makes you wonder about the validity of a financial system that depends on the masses spending themselves broke just to keep things going forward. Maybe that has been the plan all along. Something to think about.

Have a good night.

Can One Simply Borrow Forever? We May Find Out

The 20 hours straight of rain that is coming has that Erythmics song "Here comes the rain" stuck in my head. Today was a busy day with news and market swings. I can always tell something is afoot as my site gets way more hits than usual, as do other blogger sites.

Jobs Report No Longer Useful In Any Way
Readers of this blog already know that the jobs numbers that are published are not viewed as a useful data piece by Getyourselfconnected. The massive job additions made by the birth/death model are way to optimistic when the job markets turn (and in turn may be too pessimistic when jobs change to the upside). I will spend some time on the jobs number today, as another failing of the calculation was on prominent display today.

The headline number was a loss last month of 63,000 jobs. This is the second job loss print in a row, and previous numbers were revised lower as well. What was the glaring problem was that with job losses getting worse, the unemployment rate itself went down .1%! While a 0.1% change is of no significance one way or the other, the key factor to know is that over 600,000 people gave up and "left" the workforce! So because those folks could not find work and gave up looking, they do not count for the unemployment number. Why stop there? Why not just leave all those that are not working out of the numbers and we can have 0% unemployment? Maybe next month the method of computation will reflect that change!

The other issue with the jobs report is that the only jobs being created over the last year are leisure industry jobs (whats that?) and government jobs. The last thing we ever need is more government jobs! This is yet another way to manipulate the numbers, as the government could hire as many as needed to print a good number. That would be a waste of money you say? Exactly why it is probably done, this is the government.

Can One Simply Borrow Forever? We May Find Out
By now we all know the issues facing the housing and credit markets. We have seen all kinds of help programs and proposed bailouts. I have found the perfect plan that fully epitomises the mindset and sickness that is the debt laden, over leveraged consumer economy we have. Having problems paying your mortgage? Behind on payments? Saddled with too much debt that you cannot service? How about a LOAN to get caught up on your payments, and then you can repay that loan with interest as well! Think I am kidding? I submit from mortgagenewsdaily.com:

HomeSaver Advance is the Latest Program to Assist Delinquent Homeowners
HomeSaver provides funds to pay past due balances of principal, interest, taxes, insurance (PITI), and up to six months (in some cases 12 months) of home owner association (HOA) fees. Escrow advances and advances for (servicers') attorney fees can also be covered. Late fees and some other costs are not eligible.
The advance requires the borrower to sign a promissory note for the funds, payable over 15 years at a fixed interest rate of 5 percent. No payments are required for the first six months nor does interest accrue during that period so the advance is amortized over 14.5 years.
There is a $600 workout fee paid to the servicer. We assume this is a cost to the borrower.
Delinquent home-owners can borrow the lesser of $15,000 or 15 percent of the original unpaid balance and the money is applied directly to the arrearage. The homeowner never receives the money in hand.
Mike Quinn, Senior Vice President for Single-Family Credit Risk Management said in a corporation press release that "HomeSaver Advance will help Fannie Mae streamline its loss mitigation efforts and offer loan servicers a new way to cope with a delinquent loan. Our research shows that most borrowers become delinquent because of a temporary life event or hardship. This loan can offer these borrowers another alternative, and help prevent a temporary setback from becoming a foreclosure."
The corporation is undertaking the program in anticipation that it will reduce the number of delinquent loans it purchases from its mortgage-backed securities trusts and the fair value losses it would suffer in connection with these purchases.
HomeSaver Advance should be available to all Fannie Mae Servicers by April 15, 2008.
Full Link: http://www.mortgagenewsdaily.com/372008_HomeSaver_Advance.asp

My first problem with this program is even plainly stated as a purpose of the plan "The corporation is undertaking the program in anticipation that it will reduce the number of delinquent loans it purchases from its mortgage-backed securities trusts and the fair value losses it would suffer in connection with these purchases"
This program is a blatant attempt to reset bad loans to look good so the losses do not have to be written down or accounted for in real time. In effect this plan would buy anywhere from 6 months to a year before the loans would have to start the long slow foreclosure process. Even at this stage of the bust, there are still tricks being attempted to mask losses. Too funny.

My main problem with the plan is the very plan itself. In a situation where a borrower has too much debt to service and is falling behind, the answer is to give them MORE DEBT through another loan vehicle and tack that loan (with interest) onto the debt the borrower could not pay to start with? I know, maybe I am missing something. And they can drop the pretense that this program is for people with medical issues, divorce, or other short term problems. You know exactly who this loan is meant for.

The plan makes perfect sense if you think like the number crunchers that sit at a desk looking at charts and shuffling paperwork to get a desired result. The result desired here is to make a troubled loan superficially current through the magic of credit issuance. This type of thinking does not stop to ask philosophical questions like "Is more debt a good idea?", or "Is it in the best interest of the borrower to stick with this now larger loan?".

And this is exactly the problem the FED is having right now. The FED and others see a consumer spent out, stretched to the breaking point due to overbearing debt service. Because the US economy is built on credit creation and debt, they only see a solution that INCREASES credit and debt. They simply cannot step back and see that no more can be taken on.

At some point this will become clear. When the FED rate hits 1% this summer and there are still no takers for mortgages, maybe some original thinking can be done. I am hopeful, but not that hopeful!

Comic Relief and Rock Blogging
It seems the LOL Cat pictures are very popular. I love the site that makes them (listed as hilarious pictures on the blogroll). There are few free and worksafe sites out there, and that one is very good. Here are a few from the past 2 weeks that I like:

I hate it when someone flushes when I am in the shower!

Enter the ICHC online Poker Cats Contest!

A time traveller must be careful not to cause a paradox!

Enter the ICHC online Poker Cats Contest!

Do Not Look Behind You!

Enter the ICHC online Poker Cats Contest!

Now for the MUSIC!

Billy Idol with "Eyes without a Face". Great lyrics, thundering baseline, and I mean its Billy Idol!


Yes she is totally insane and a bit scary, but Courtney Love can kick butt with her ripping band called Hole. Check out "Violent":


Always been a big Metallica fan. I remember waiting all night to see their forst ever video on MTV way back when. The song "One" with its simply stunning drum work made a lasting impression on many:


Before Prince went bonkers, he was the most promising guitarist is a long time. "Lets Go Crazy" should set you up for a Friday night!:


Have a good night!

Housing Bailout Talk Reaching Fever Pitch

Sunny and mid forties again! Almost too good to be true, and it is as Massachusetts is facing TWO days full on of torrential rainstorms! Better than snow any way you look at it.

Two Great Posts That Require Review
While I try my best to provide top notch content here every day that I can, I come across so much material during the day and during blog post preparation that is so VERY good that I feel like it is worth the readers time to check out a link or two to get a better picture of the financial landscape. Tonight there are two such blogs that I would suggest checking out.

First up, the always must read Mike Shedlock with his latest post:
http://globaleconomicanalysis.blogspot.com/2008/03/financial-system-broken-markets-utterly.html
This is a great collection of real time headlines that underscore the major issues right now. Great snippet:
"Other than overleverage, bad debts, sinking home prices, no jobs, shrinking wages, cash strapped US consumers, rising oil prices, a sinking US dollar, $500 trillion in derivatives not marked to market, rampant overcapacity, underfunded pension plans, looming boomer retirements, no funding for Medicaid, no funding for Medicare, and no Social Security trust fund, everything is just fine. And even though the Fed, central bankers in general, and governments combined to create this problem, the irony is nearly everyone is begging for them to fix the problem by encouraging still more speculation in housing, commercial real estate, and the markets. Sorry folks, it's the end of the line and payback time for the world's most reckless financial experiment in history. The deflation genie can't be put back in the bottle until leverage everywhere is unwound."
Heh, indeed.

The other highlight of the rounds is the latest Market Ticker:
http://market-ticker.denninger.net/2008/03/how-to-solve-home-price-valuation-mess.html
Mr. Denninger covers a truly wonderful tax appraisal reform idea that should go into effect immediately. He also does his usual masterful job of cutting through the baloney on a wide range of issues. Great snippet:
"This problem cannot be solved with "rate cuts." In fact, what is required right now is a draining of systemic liquidity to force up market rates and thereby force market participants to stop hiding things, accelerating the margin call monster so that we can clear all this bad paper and find out who's broke and who's not!"
It's that simple folks.
I know its weak to link, but those two items are worth the read.

Housing Bailout Talk Reaching Fever Pitch
Last week we got the joke from President Bush and Hank Paulson that both are firmly against bailouts for real estate "speculators". This week they may have been sent a memo that the only people in trouble are the "speculators". Oh well, it sounded tough for a few days anyway!

After numerous programs aimed at keeping families in their homes have been all but useless, the real talk of bailouts has begun to ratchet up a few levels. BernanSpan has FINALLY figured out that the major problem facing the housing market is that prices are falling. He has already called for principle reduction on loans, so what is the next logical step?

We get an inkling from a story today on Yahoo Finance:
AP
Housing Market Spirals, No End in Sight
Thursday March 6, 5:30 pm ET By J.W. Elphinstone, AP Business Writer
Low Home Equity, Record-High Foreclosures: a Limp Housing Market Looks Even Weaker
NEW YORK (AP) -- Nervous homeowners and economic analysts have been wondering how much worse the housing market could get. On Thursday they got an answer: Plenty.
I agree wholeheartedly

Foreclosures are at a record high. Home equity is at a record low. The housing market is spiraling down with no end in sight -- and taking people's sense of economic security with it.
For the first time since the Federal Reserve started tracking the data in 1945, the amount of debt tied up in American homes now exceeds the equity homeowners have built.
The Fed reported Thursday that homeowner equity actually slipped below 50 percent in the second quarter of last year, and fell to just below 48 percent in the fourth quarter.
"There is no sign that we're near the bottom in the housing market," said Douglas Elmendorf, a senior fellow at the Brookings Institution and former Fed economist. "Housing prices will probably fall for a year, two or three to come."
This guy is great! We are nowhere near a bottom, but things could fall for 1 year, or 2 or 3? OK.

The trifecta of reports illustrates a housing market caught up in a "very negative, reinforcing downward spiral," said Mark Zandi, chief economist at Moody's Economy.com.
Homeowners, who once happily tapped home equity for expenditures and home improvements, may instead save money as they watch their total net worth wither. Those who are willing to spend their home equity will find lenders reluctant to give out home equity loans or lines of credit.
"People were relying on home equity to maintain consumption. They can't keep doing that once the equity's gone," said Dean Baker, co-director at the Center of Economic Policy Research. "Undoubtedly, this is one reason for the falloff in consumption in last couple of months."
Mr. Baker could be the posterchild for why analysis does not equate with wisdom. Mr. Baker correctly identifies that home equity was used as a type of income, as I have made clear was the homes utility for the recent buyers, but he sees no problem with that process at all. All we need is more appreciation to continue fueling consumption with debt while devouring home equity, and that's just wonderful!

So far, the government has stepped in with a number of measures to contain the housing fallout. Last month, Congress passed a $168 billion economic stimulus package with provisions aimed at helping homeowners refinance into more affordable loans. The Federal Reserve has also slashed interest rates to in hopes of spurring growth.
On Tuesday, Fed Chairman Ben Bernanke suggested lenders reduce loan amounts to provide relief to beleaguered homeowners. But some experts think more help is needed.
"At the end of the day, these efforts will be insufficient," Zandi said. "Policymakers will need to be more aggressive and put taxpayer money on the line to stem this. Ultimately, we will find a bottom, but it would be a mistake to let the market run its course."
OK Karl Marx! And at the end we see the opening salvo in the war to enlist the taxpayers money to bailout the screwballs that screwed us all.

Forget a rate freeze. Forget a principle reduction. And especially forget letting the capitalist UNITED STATES OF AMERICA markets function by themselves. Mr. Zandi out and out calls for application of taxpayer money directly to the housing mess. One does not need to guess what this kind of naked call is meant for, an absolute backstop of home prices.

Did you notice where Mr. Zandi works? It pays to always check a source because that can explain why they are retarded many times. Mr. Zandi works at a subsidiary of the always on the money Moody's! Of course this guy wants a taxpayer backstop, his company rated a ton of this crap AAA, and now that they have been exposed as fools! Not exactly an unbiased observer!

The next leg of the housing journey is going to involve plans that will try to fix home prices at some level deemed necessary. I have no idea how this plan will work, how much it will cost, or what the ramifications will be. But I know a plan is coming. It is too late to do anything now if you are against these things, the machinery is in motion. We will have to wait a bit longer to see just how hard we are going to get pumped. I have a new poll up, please vote!

Comic Relief
On a lighter note, all the problems of the housing market could have been avoided if this had occurred more often during the boom years:

Enter the ICHC online Poker Cats Contest!
REJECTED!

Have a good night.